Lower Mortgage Rates Boost US Home Sales

According to Lawrence Yun, the chief economist of the National Association of Realtors, the recent decline in mortgage rates is expected to boost U.S. home sales by more than 200,000 homes. This is due to cheaper financing resulting in more people qualifying for loans, which ultimately leads to more sales.

Yun stated that each half a percentage point drop in mortgage rates results in an additional 200,000 home sales, and even more than that. The average U.S. rate for a 30-year fixed home loan dropped to 6.28% last week from 6.73% in March’s first week, according to Freddie Mac.

The benefits of lower mortgage rates for US home buyers

This decline in the cost of financing reduces monthly payments, meaning more buyers will pass the debt-to-income test lenders use to qualify applications. “Lower mortgage rates open the gate – not for everyone, but for people who were on the margins,” Yun said. Yun predicts that mortgage rates will likely remain near the current level in the short term and decline further in the coming months.

The average U.S. rate for a 30-year fixed mortgage probably will be 6.3% in the second quarter and 5.9% in the third quarter, he said. This is good news for the housing market as about 40% of U.S. home sales go under contract in the April to June period, according to data from NAR.

Key benefits to home buyers when mortgage rates lower:

• Lower mortgage rates reduce monthly payments, making homes more affordable for buyers.
• Cheaper financing results in more people qualifying for loans, which ultimately leads to more sales.
• With lower mortgage rates, buyers can afford to purchase more expensive homes or opt for shorter loan terms.
• Lower mortgage rates make homeownership a more attractive option than renting, as it can be more affordable in the long run.

Reasons behind the decline in mortgage rates

Bill Banfield, executive vice president of capital markets for Rocket Mortgage, believes that the peak of the spring home-buying season is upon us, and people want to settle their families in a home before the new school year starts. This is why lower mortgage rates have come at the perfect time. John Hardesty, general manager of the mortgage division at Argyle, believes that whenever there is unrest in the markets, mortgage rates tend to drop.

Mortgage rates hit 20-year highs at the end of October and again in early November last year. This was due to inflation spooking investors and the Federal Reserve ending a bond-buying program aimed at supporting the economy during the worst of the pandemic. Rates remained near those peaks until last month’s failure of Silicon Valley Bank and Signature Bank, which caused financial instability and sent Wall Street investors scurrying for the perceived safety of the bonds markets.

Outlook for the US housing market with declining mortgage rates

The increase in competition for fixed assets sent the average yield on 10-year Treasuries, a benchmark for mortgage rates, to a seven-month low last week. Overall, the decline in mortgage rates is good news for the housing market. Cheaper financing will result in more people qualifying for loans, which will ultimately lead to more sales. This is especially beneficial now as we’re in the peak of the spring home-buying season. With rates expected to remain low in the short term and decline further in the coming months, the future looks bright for the housing market.